The $100 million gas bill

January 26, 2006

For years Peoples Gas fought charges that it had defrauded customers in the harsh winter of 2000-2001 through its tangled business dealings with Enron. Last week Peoples and its parent, Peoples Energy, gave up that fight and settled all outstanding litigation with the state and city, a resolution that includes $100 million in refunds to be shared by its 1 million customers.

Peoples still says it did nothing wrong. A $100 million settlement says otherwise.

Pending the approval of the Illinois Commerce Commission, this will close the books on Peoples' ill-fated ventures with Enron into the high-flying and murky world of natural-gas trading. The settlement covers all of Peoples' dealings with Enron between 2000 and 2004.

The core question: Did Peoples improperly let Enron use cheaper, stored gas that was intended for Peoples customers, then buy more-expensive gas to replace it and pass those higher costs on to customers?

Illinois Atty. Gen. Lisa Madigan, Chicago Mayor Richard Daley and the Citizens Utility Board argued that that's precisely what Peoples did. The arrangements with Enron enriched both corporate entities at the expense of the utility's customers. The plaintiffs charged that Peoples engaged with Enron in fraudulent natural-gas trading to illegally divert supplies from the regulated gas utility using sham companies, illegal agreements, questionable accounting and misrepresentations to customers.

An ICC administrative law judge largely agreed. He found that the higher costs shouldn't have been passed along to customers. Accepting Peoples' position that it behaved properly, the judge added, "would only encourage utilities to use assets meant for consumers as a means to cull corporate profit that is not passed onto consumers."

Enron is bankrupt and disgraced. Some of its executives have gone to prison on fraud charges, and others await trial. Peoples insists that its transfer of gas to a joint venture of Enron and Peoples Energy was a matter of bookkeeping. As a regulated utility, Peoples Gas has an obligation to buy gas in a prudent manner for its customers. It seems clear from this record that it did not.

The settlement should be approved. Under it, customers would receive a refund in a two-part credit, $50 this year and $50 next year. Peoples also agreed to pay $30 million over six years to help low-income people weatherize their homes. It will forgive the back debts and work to reconnect about 12,000 customers, provided they can show financial hardship. This could cost the utility up to $14 million.

Peoples Gas is expected to file soon for a rate hike from the ICC. Given its dealings in the Enron matter, the factual basis for that request will deserve even more scrutiny than usual.